Sobering speech by Serbia’s c.bank chief

Serbian central bank Governor Radovan Jelasic told the IMF and World Bank panel that he sees economic gloom for Serbia in 2009 that will extend over into 2010.

“What do I expect at the end of 2009?” asked the Governor rhetorically in his speech to the panel titled Global Crisis in Europe and Central Asia.

Then he answered:

I am afraid, nothing good.  Fiscal income will deteriorate even further while the shadow economy will gain in importance.  Governments will focus almost exclusively on financing current consumption (wages and pensions), even through accumulation of fresh debt, while capital investments will be substantially cut back.

The Governor said that banks will “face a deteriorating loan portfolio” and that their primary preoccupation will be refinancing bad loans, loan more to the government, cut its costs and hoard cash.

As there is no chapter 11 type of creditors’ protection scheme, the number of bankruptcies [the Governor probably meant liquidation] will increase as well.

The Governor also warned of a regional financial contagion and urged that Austria extends its promise not to disengage its banks from the entire region and not just Serbia.

Once we have finalized our deal, I hope in a matter of days, the deal makers should focus on all other countries as spill over effect is very large:  a rumor regarding any bank in Serbia or Croatian circulates in the region in matter of hours and could cause irreversible damages.

The Governor appealed to the politicians to stop spreading false expectations [see my previous blog].

The entire speech is available here.